High Debt, Low Rates and Tail Events: Rules-Based Fiscal Frameworks under Stress

The economic implications of the Covid-19 crisis have had deep impact on public finances, severely affecting debt levels in most EU Member States. The activation of the general escape clause of the Stability and Growth Pact (SGP) paired with new EU instruments such as the SURE and Next Generation EU have made room for countries to respond as they saw fit. But what will happen when we eventually return to “normality”? How severely and for how long has the crisis altered public finances? Is the current fiscal framework equipped to effectively address the drastically increased debt levels of several Member States?